Indian Railways Tendering Rules Can Consider Social Impact and Development

Indian Railways has decided to move from a purely financial return-based evaluation of bids for new projects to a more holistic approach that includes social and developmental impact.

Officials familiar with the sweeping change in bidding standards said the Modified Economic Internal Rate of Return (MEIRR) will allow the railways to assess the economic, social and developmental aspect of a project, allowing the national carrier to undertake more projects in remote areas. or low density areas.

“We cannot continue to deny rail connectivity to people in certain parts of the country simply because there is no immediate financial return that can be assessed,” a senior rail official told ET under covered with anonymity.

The change was prompted by a growing view within government that an assessment based solely on the financial rate of return was inadequate and the social and developmental needs of a region and its people should also be taken into account.

For example, new passenger rail projects, such as the Regional Rapid Transit System (RRTS) in the National Capital Region (NCR), are among those that appear to have low financial viability but strong economic viability. positive impact on the population and surrounding areas. .

The MEIRR can be developed at the project, zonal and national level depending on the impact it creates at different levels. This will be reviewed in detail before a final decision is made on any investment.

Experts said the latest change brings the framework in line with global practices. “The new method is aligned with frameworks used in countries like the UK and Australia to assess the economic impact of new projects,” said Arindam Guha, head of government and utilities at Deloitte India.

Guha said the new method appears to be more comprehensive as it covers the economic impact of the project on alternative modes of transport like roads as well as the effect on the existing rail network.

MEIRR will emphasize financial, economic and network approaches to project appraisal. These approaches will be based on converting financial cost to economic cost by excluding taxes, subsidies and interest payments, among other factors.

The new financial approach will only take into account the actual costs of the project, operations and maintenance and capital replacement.

The economic approach will assess the benefits obtained by comparing the benefits to users in the “with project” and “without project” scenarios. It will take into account savings in travel time, vehicle operating costs, improved safety, reduced pollution and reduced road stress. Fuel savings and the development of road infrastructure will also be an assessment parameter.

Joel C. Hicks